Business Value of Cloud - Board Insights

Cloud can become an important source of strategic advantage for businesses. It’s time for boards to get involved.

With the mounting evidence?of cloud’s?ability to drive significant business value, more and more companies are considering cloud’s role in fundamentally reshaping the competitive posture of their business (see sidebar, “Business value of cloud”). Yet, across interviews with almost 40 different boards, only 13 percent were actively thinking about and engaging in conversations around cloud. For one-third of these boards, cloud has never been considered important enough to discuss at all. This trend spanned boards across regions, industries, and company types.

In my discussions, I found that board members faced a number of specific challenges when it comes to engaging effectively on cloud. While directors across industries have come to recognize technology’s role in corporate strategy and business differentiation as a top agenda item, boards have generally viewed cloud as an infrastructure topic under management’s purview and not something for the board to engage on directly. As one director put it, “Cloud is always just a sentence in the discussion about tech risk.”

Private-equity-backed boards in particular have demonstrated a keen interest in exploiting the competitive advantages of cloud by targeting another best practice: accessing cloud talent. These boards seek out best-in-class expertise and often have directors with previous cloud-related experience. That brings a practical understanding of what it takes to migrate to and fully exploit the cloud through app re-architecture, security frameworks, change management, and more.

How boards can effectively engage with cloud

Based on interviews and our experience working with boards and on cloud transformations, we have found four practices and corresponding sets of questions to be most useful in helping boards engage effectively with their management on cloud. These practices and questions apply to boards across company types, although there may be slight nuances to consider depending on company size and maturity.

1. Link cloud to the overall strategy discussion

Boards generally understand that the key conversations with management about cloud must go beyond discussing “should we be in cloud and when?” The board can instead be helpful in applying its business and strategic experience in guiding its leadership teams to think through how cloud can drive the business strategy. Cloud’s flexibility and speed, for example, can help businesses rapidly test and iterate on targeted use cases, such as scaling services, personalizing customer experiences, and capturing market opportunities.

2. Incorporate cloud into risk and compliance discussions

Forward-thinking boards have begun to incorporate cloud into their risk-assessment frameworks and decision making on risk. While executives have traditionally been hesitant to move to cloud because of security concerns, the reality is that cloud service providers (CSPs) have invested significant resources in establishing best-in-class security that often outstrips what companies themselves can do. Where boards can add value in this context is in pressing management to update security training as part of a comprehensive effort to unlock the risk advantages of cloud. Security should be integrated into product strategy, DevOps culture, and technology development alike. Additionally, directors should seek to ensure that management has well-thought-through risk-mitigation plans in place so that the board can be comfortable approving cloud-related strategies.

3. Support the development of cloud capabilities throughout the organization

The full benefits of cloud are possible only when IT and the business transform their operating model to be faster, more agile, and more collaborative. This requires upgraded skills and ways of working throughout the organization and clarity around how the changes fit into the broader digital transformation. The board can press management to ensure that plans are in place to both hire the right new cloud talent, from cloud architects to DevOps engineers, and provide appropriate training and upskilling for current employees. Business executives as well must understand how cloud may drive new value and accelerate the organization’s business priorities. To track progress, the board should ask management to ensure cloud talent development is an explicit part of the broader transformation program through regular updates and specific metrics, such as the number of cloud certifications.

4. Oversee and communicate cloud’s financial impact

While cloud can generate significant value, the transition requires a substantial up-front investment. Cloud also mandates a shift from a capital-expenditure-heavy operating model (data centers, servers) to one that is operating-expenditure heavy (CSP costs). As such, board members must work with management from the beginning to develop a clear cloud business case that explicitly accounts for the trade-offs against future value needed in up-front investments and operating-expenditure shifts.

The board also has a role in reviewing management’s communications about these financial changes to shareholders, employees, and other stakeholders. These should clearly explain the direction in which cloud is taking the organization and why it is the right decision for the business. For shareholders especially, it is important to set clear expectations that these investments and changes to the P&L statement will lead to greater long-term returns. The board should be aligned with management’s narrative and, at private companies in particular, may even take a more active role in crafting and communicating the messages.

Building board fluency on cloud and technology

A cloud strategy doesn’t live in isolation; it is a critical enabler of a company’s larger technology and digital transformation. Boards therefore need to build their knowledge of cloud and its ability to drive competitive advantage. A critical step in meeting this challenge is onboarding directors who have successfully introduced cloud in another organization and who are able to scrutinize the business implications of cloud and understand cloud’s role in accelerating digital transformations. But a key facet of a successful governance model is to ensure, through continuous board education, that cloud doesn’t become a topic only for members with prior technology and cloud experience.

In addition to knowledge-building workshops, boards have organized special sessions ahead of major decisions, convened external expert advisory boards, or invited independent technical advisors and outside speakers for guidance. Depending on the role of technology in corporate strategy and the board’s capacity, certain boards may find that forming a technology committee can help focus attention on asking management the right questions, while ensuring technology decisions remain front and center on the overall board agenda.

Many leaders know that cloud frees companies from the limitations of traditional technologies, but they remain stuck in outdated models of what they can achieve and set the bar too low. Business and IT leaders should clearly and urgently articulate a high-value ambition—a moon shot achievable when they work closely together on cloud.